Gov. Gretchen Whitmer at Lansing Community College, Feb. 16, 2022 | Laina G. Stebbins
Promoting her recent budget proposal before a crowd at Lansing Community College Wednesday, Gov. Gretchen Whitmer characterized the $2.5 billion tax cut passed by the GOP-controlled Senate this week as “not sustainable.”
Whitmer last week proposed a $74 billion Fiscal Year (FY) 2023 budget plan that would encompass funding increases for education, infrastructure and more. The proposal taps one-time federal funds and record tax revenue earned during the pandemic.
She also has called for strategic tax cuts for seniors and workers by repealing the tax on pension income and beefing up the Earned Income Tax Credit (EITC).
Just days later, the GOP-led Michigan Senate adopted legislation that would slash income tax rates for individuals and corporations by $2.5 billion.
That legislation, Senate Bill 768, was passed in the chamber on a party-line vote Tuesday. The governor and state lawmakers have yet to start the process of budget talks before the Sept. 30 deadline.
“The tax cuts that I proposed, we can pay for with ongoing revenue expectations,” Whitmer said during the Lansing event Wednesday. “The $2.5 billion tax cut that the Senate passed yesterday, I don’t believe is sustainable, and would undermine our ability to fund things like education and infrastructure and public safety.
“Any policy is going to have to be negotiated with the budget, because you have to show me that we’re going to be able to afford this long term,” she continued.
According to a Tuesday analysis from the nonpartisan Senate Fiscal Agency, SB 768 would reduce tax revenue by more than $2 billion within the next two years.
The individual tax rate would be decreased from 4.25% to 3.9% under the legislation. Depending on certain variables, this rate change would reduce General Fund revenue by $747.5 million in FY 2022, by $1.09 billion in FY 2023 and by $1.12 billion in FY 2024.
The corporate income tax rate — which Republican former Gov. Rick Snyder signed in 2011, representing a $2 billion annual business tax cut— would also be decreased from 6% to 3.9%. The fiscal analysis finds that this would reduce General Fund revenue by $306.9 million in FY 2022, by $465.5 million in FY 2023 and by $490 million in FY 2024.
The revenue loss would also pile up more in later years as the economy grows and inflation raises allowable exemption rates.
Republicans said the tax cuts will help Michigan families.
“Michigan residents and their families have been hurting as the state emerges from a pandemic and costs continue to rise due to inflation,” state Rep. Matt Hall (R-Marshall) said in a statement. “… They are calling for real relief — tax plans that put them and their budgets first.
“When evaluating this and other tax proposals, my focus is on hard-working people, families and seniors. I will continue to prioritize them going forward,” he added.
Whitmer’s budget aims to take advantage of the state’s better-than-expected revenue growth throughout the pandemic by offering big funding for priority areas, as well as targeted tax cuts.
That includes a gradual end to the so-called “retirement tax,” a controversial policy signed by Snyder that taxes the pensions of Michigan’s retirees.
But on Tuesday, all Senate Republicans voted against eliminating the pension tax, even though criticism of the tax has been bipartisan over the last decade.
Whitmer, during the Lansing Community College event Wednesday with Lansing Mayor Andy Schor, LCC President Steve Robinson and Lansing Regional Chamber of Commerce President and CEO Tim Daman, emphasized that growing the economy is the state’s top priority right now.
She also noted that any potential tax cuts need to be strategic and ultimately affordable.
“There will be a lot of ideas out of the Legislature, and I don’t know what they all are going to be. … But ultimately, we’ve got to be really shrewd,” she said.
“At this juncture, a small amount of money that goes to every single person as opposed to a strategic break for people that were forced to change their whole lifestyle to just be able to keep their head above water, like our seniors and our working people that are working and at the lower end of the socio-economic spectrum — this, I think, would not make a lot of sense.
“It would not have a meaningful improvement in the quality of life of people that we know are struggling,” Whitmer continued.
The state House is likely to offer an altered version of SB 768 before the legislation is concurred by both chambers. Whitmer is expected to veto the bill if it makes it to her desk, and this is shaping up to be an issue Republicans want to use as she’s up for reelection in November.
The Advance asked further questions about the bill in an email, including whether she believes a corporate income tax cut is necessary given that Whitmer signed a $1.5 billion business tax incentives package in December.
Whitmer’s office declined to speak to specific legislation, as “there’s a lot left in the process,” but spoke generally about where Whitmer is at on legislation to cut taxes.
“As we continue to find every way to grow the economy, Governor Whitmer is looking to lower costs and put more money in the pockets of seniors and working people. That’s why she put forward a plan in the budget to eliminate the retirement tax to save seniors $1,000 per year on average and cut taxes for working families to put $3,000 back in people’s pockets each year,” spokesperson Bobby Leddy said.
“These are hardworking people who had the rug pulled out from under them when the previous administration raised taxes on Michiganders. We can start with making things right again by eliminating the retirement tax to give seniors a much-needed break and cutting taxes for working families.”
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